Why the Reserve Bank’s elusive inflation target means it must hold rates

Borrowers may need to brace for rate hikes despite lower inflation. Picture: John Appleyard ANALYSIS The RBA board members are dead set kidding themselves if they are going to try and convince us that a rate rise is still on the cards for August. Headline inflation came down from 4 per cent to 3.8 when the ABS released its latest consumer price index last week. The previous month had also seen a fall from 4.2 per cent. And the month before that had come down from 4.6 per cent. It seems that’s a trend. Then there was the trimmed mean inflation, something the RBA “prefers” to use when making its decisions (usually when preparing us for a rate rise). It’s kind of like the Bureau of Meteorology telling us what the actual temperature is, but then that it “feels like” a different temperature. MORE: Shock as big banks flip rate predictions So, the trimmed mean was steady at 3.6 per cent (but it feels like 3.8!), which was the first time it hadn’t risen for months. Surely that’s cause to celebrate. We’re winning the war on inflation once again. It’s a slow grind. It may drag on longer than hoped for, but we’re getting there. inflation is 3.6 per cent, but it feels like 3.8 per cent. Pictur...